BRIDGETOWN, Barbados, Friday June 28, 2013 – The major challenge facing the Barbados economy is to reduce the fiscal deficit in order to determine a policy that finds the right balance between fiscal consolidation and economic expansion.
Prime Minister Freundel Stuart told a one-day National Consultation on the Economy that Barbados is experiencing its most severe economic challenges since World War II and that it had managed to stave off the worst effects of the economic and financial crisis which had “bedevilled the world economy over the last five years”.
He told public and private sector officials at the day-long event on Thursday that the island’s economic history showed that when the major trading partners from the developed world were doing well, “we do well, and when they are challenged, we feel the negative impacts of their challenges”.
Stuart said that the test now was to reduce the fiscal deficit, and that it was imperative to do all that was required to ensure that the foreign exchange earning sectors were “restored to vibrancy and that we save foreign exchange”.
The prime minister contended that a fiscal deficit was not “totally undesirable”, but rather its size was a cause for concern.
He called for a “laser-like focus on cost effectiveness” noting the major challenge confronting government was determining a policy choice that “finds the right balance between fiscal consolidation and a sustained economic expansion that is led by the foreign exchange earning sectors”.
Stuart acknowledged that government debt had risen “sharply both in absolute terms and as a percentage of GDP (gross domestic product), but that his administration had been able to hold other expenditure reasonably stable over the last five years, and had tried as far as possible to restrict increase in expenditure to debt service costs.
“The government is conscious of the negative impacts on the economy that are induced by a high debt to GDP ratio. Barbados’ debt to GDP ratio has been trending upwards over the last 35 years.
“The fracture in the global financial architecture occurred at a most inopportune time, when several small developing economies in the sub-region had commenced the process of fiscal consolidation. There can be no doubt that fiscal consolidation in small economies such as Barbados is best undertaken during a period of sustained buoyancy in the global economy,” he said.
Prime Minister Stuart stressed that as a result of the size of government all concerned needed to exercise great care to craft a fiscal consolidation strategy that did not inflict injury on “businesses, the economy and the quality of life of our people”.
The national consultation was designed to produce a framework for a united and effective response to the serious challenges facing the country, and involved senior officials from both the public and private sectors.
In April, the Central Bank of Barbados announced that the local economy had contracted by 0.4 per cent in the first three months of 2013 and urged the authorities to put “back on track” the fiscal consolidation strategy as well as a new medium term adjustment strategy to turn around the island’s economic fortunes.
In its review of the Barbados economic performance for the first quarter of this year, the Central Bank said that on current trends there may be no real increase in the contribution to gross domestic product (GDP) from the tourism or international business sectors in 2013.
It said that the forecasts for the rest of the economy are no better, with overall GDP expected to be virtually flat.
But Stuart said his administration is committed to pursuing a strategy that will systematically reduce the fiscal deficit, and foster economic growth and innovation.
He pledged that government would work “hand in hand with the leadership in industry, labour and civil society, to create an enabling environment that re-energises the engines of growth and innovation” in the economy, and thus enhance the quality of life of Barbadians.
However, he warned that this country needed to be more competitive, more productive and committed to a much higher quality of service, stressing that this could not be achieved overnight, but would require that all concerned worked “assiduously to achieve personal and national goals”.
“We must eschew drifting into a community more concerned with highlighting what is wrong than with taking the steps necessary to put things right…Let us aim for creativity, not commonplaces; let us aim for innovation, not limitation. This is not a time for division and hollow posturing. If we work together, we will achieve and succeed together.”
Prime Minister Stuart outlined a number of economic realities confronting the island, adding real economic growth had in fact “continued to be at worst elusive and at best anaemic”.
He said the government revenues had been challenged as a result of the economic decline, as this had impacted on the earning and spending capacities of all sectors.
He pointed out that although revenues had been falling, the demand for Government to maintain the social safety net had been heightened.
“Government has not been able to ignore these demands because that social safety net is, in large measure, responsible for the relative peace and stability which we enjoy and which has made Barbados continuingly attractive to foreign investors and visitors,” he added.
Stuart said that it was the combination of these factors that has led to a fiscal deficit that was higher than the government would have liked it to be, even though it was largely incurred in the interest of social and economic stability.
“As a result, government debt has risen sharply both in absolute terms and as a percentage of GDP. This has meant higher debt service expenditure both in absolute terms and as a percentage of declining government revenues. Government has been able to hold other expenditure reasonably stable over the last five years, and has tried as far as possible to restrict increase in expenditure.” (CMC) Click here to receive free news bulletins via email from Caribbean360. (View sample)